EPA emissions ruling may threaten US coal sector

6/28/2012

The US federal appeals court decision to uphold the Environmental Protection Agency's (EPA) greenhouse gas rules will limit the use of coal for electricity generation and increase the nation's reliance on other fuel options, according to a new report from Fitch Ratings.

Earlier this week, the US Court of Appeals said EPA was correct in using existing federal laws to reduce emissions of six gasses, including carbon dioxide, by denying two of the challenges and dismissing the others.

Fitch says the decision will severely constrain the construction of future coal-fired plants.

The effects are also expected to further strain the operations of older, smaller coal-fired plants already struggling to address imposed restrictions on other pollutants.

Many of these plants may be prematurely retired, as significant new investment would be needed to meet prescribed emissions requirements.

Most are located in the Midwest and central states, including Pennsylvania, Ohio, Indiana, Illinois, and Michigan.

Moreover, Fitch says it foresees a continued reduction in the use of coal as a fuel and an increase in the use of natural gas.

As such, fuel price dynamics have already begun a large shift for some electricity producers.

According to the Energy Information Administration, in April 2011, almost twice as much of US net power output was generated from coal than natural gas-fired units. In April 2012, they contributed nearly the same.

Other power resources, including nuclear, may also be given greater consideration going forward.

Future construction of coal-fired plants is unlikely given these rules and a myriad of others due this year and next, the credit-watch firm said.